Question

The Casings Plant of Wyoming Machines makes plastics shells for the company’s calculators. (Each calculator requires one shell.) For each of the next two years, Wyoming expects to sell 670,000 calculators. The beginning finished goods inventory of shells at the Casings Plant is 90,000 units. However, the target ending finished goods inventory for each year is 15,000 units. Each unit (shell) requires 6 ounces of plastic. At the beginning of the year, 220,000 ounces of plastic are in inventory. Management has set a target to have plastic on hand equal to three months’ sales requirements. Sales and production take place evenly throughout the year.

Required:

a. Compute the total targeted production of the finished product for the coming year.

b. Compute the required amount of plastic to be purchased for the coming year.

Answer 1

a.

Target production of the finished product for the coming year = Sales in units + Ending finished goods inventory in units - Beginning finished goods inventory in units

= 670,000 + 15,000 - 90,000

= 595,000

b.

Sales each month = 670,000 units / 12 = 55,833

The required amount of plastic to be purchased for the coming year = Production requirment the next year + Ending ounces of plastic - Beginning ounces of plastic.

= (595,000*6) + (55,833*3*6) - 220,000

= 3,570,000 + 1,004,994 - 220,000

= 4,354,994